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Renault, Deeply In The Red, Starts To Turn Around

But Electric Gamble Overshadows More Prosaic Action
Investors Embrace Idea Of Asset Sales Insurance
Electric Market Share Of 10 Per cent By 2020 Looks Over-Ambitious

Renault, despite losing a huge amount of money in the first half of 2009, is starting to please investors again, although some are feeling a bit queasy about CEO Carlos Ghosn’s battery power gamble.

Renault lost €2.7 billion in the first half of 2009 compared with a net profit of €1.5 billion in the same period of 2008 – a swing of more than €4 billion.

But according to Deutsche Bank analyst Gaetan Toulemonde, Renault’s presentation at the Frankfurt Car Show from COO Patrick Pelata said the company would regain market share in Europe later this year, underlined its priority of cutting costs with its alliance partner Nissan, and was cranking up mass production of electric vehicles.

Bank of America Merrill Lynch said Renault is increasing production thanks to rising orders. This will be good for profits.

“More Megane and Clio III will be added, clearly supporting profitability and operating cash flow in the second half of 2009,” the investment bank said in a report, after listening to Pelata’s presentation, adding that because of Renault’s link with Nissan, the company represented an indirect way to invest in the U.S. market, expected to recover before Europe.

Commerzbank analyst Daniel Schwarz saw some safety for investors who invest in Renault.

Fail safe
“We like the fact that Renault, unlike Peugeot-Citroen, has an emergency option: with Volvo (Trucks) and Nissan the company owns assets that it would be able to sell should we not see an improvement in 2010. We like Renault’s indirect exposure to the U.S. via Nissan, as we expect a recovery from a record low level in 2010,” Schwarz said.

Some analysts say Renault’s holding in Volvo Trucks could be worth upwards of €2 billion.

But IHS Global Insight analyst Tim Urquhart was concerned about Renault’s electric car gamble.

“Renault is basically betting the future of the company on its bold electric passenger car strategy. The cost of developing, marketing and implementing the related infrastructure will mean that there will be little room for error,” Urquhart said.

Bold “Quickdrop”
Urquhart said the boldest part of Renault’s electric strategy was the deal with Better Place, the environmental organisation, to start a network of “Quickdrop” charging stations which will allow people to replace spent batteries with new fully charged ones in a matter of minutes.

“Perhaps the boldest claim made by Ghosn was that electric vehicles will make up 10 per cent of total industry volume by 2020. IHS Global Insight’s current forecast is rather more conservative, with our current forecast predicting that just 0.6 per cent of total industry volume will be provided by pure electric vehicles by 2020, with a further 0.7 per cent being provided by plug-in hybrid vehicles,” Urquhart said.

Deutsche Bank’s Toulemonde agreed that Renault was taking a gamble.

“Renault has clearly bet on the success of the electric vehicle, being the only big manufacturer set to have four mass-market models by 2012,” he said.

Unfortunately, there was no word on whether the bet will win or lose.

Neil Winton – October 1, 2009

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